Académique Documents
Professionnel Documents
Culture Documents
DATE: 9/12/13
William Gornall, Theresia Gouw, David Hoyt, and Professor Ilya Strebulaev prepared this case as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright 2013 by the Board of Trustees of the Leland Stanford Junior University. Publically available cases are
distributed through Harvard Business Publishing at hbsp.harvard.edu and European Case Clearing House at
ecch.com, please contact them to order copies and request permission to reproduce materials. No part of this
publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any means electronic, mechanical, photocopying, recording, or otherwise without the permission of the
Stanford Graduate School of Business. Every effort has been made to respect copyright and to contact copyright
holders as appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at
cwo@gsb.stanford.edu or write to Case Writing Office, Stanford Graduate School of Business, Knight Management
Center, 655 Knight Way, Stanford University, Stanford, CA 94305-5015.
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 2
As he talked to programmers developing apps for mobile devices, he realized that there might be
a good business opportunity if someone could develop a way for people to easily program and
manage apps across multiple platforms, allowing apps on different devices, using different
operating systems, to talk to each other. He began to work on this idea in his spare time.
Lopez had met John Stevens several years earlier. At the time, Stevens was an investment
banking analyst focusing on the mobile industry, with a particular interest in apps. They had met
at a conference, and had a long discussion of the industry and its future.
Stevens had majored in economics as an undergraduate. As an analyst, he liked learning about
the mobile industry, and particularly enjoyed the chance to meet people from throughout the
industry, see what they were working on, what worked and what did not. However, from the
beginning, he wanted to work for a startupthe job as an analyst was preparation for that
eventuality. The next step in his preparation was to attend the Stanford Graduate School of
Business (GSB), and get his MBA. At Stanford, he participated in a wide range of activities
related to entrepreneurship, both at the GSB and in the engineering department. While talking
with a group of computer science students, one of them mentioned Lopez, who had been looking
for students to help with his project. Remembering their conversation years earlier, Stevens
looked up Lopez, and they got together. After discussing the idea in great detail, they decided to
form a company, Universal MobilApps, Inc. (Universal). Stevens was excited by the business
concept, and was convinced that Lopez had the technical ability to make it happen. Lopez knew
he needed help on the business side, and believed that Stevens had the ability, drive, and industry
contacts that were needed to succeed.
Lopez and Stevens worked hard to network in the tech community and in early-2012 they began
to talk with angels about the possibility of seed funding. In January, they took an investment
from Languita Angels, a well-known angel group, in the form of $300,000 in convertible notes.
(See Exhibit 1 for the angel term sheet.) They used this money to hire a small staff, and develop
software that demonstrated proof of concept on some devices and apps. They then formed
technical partnerships with several mobile device manufacturers, including Samsung, Google,
Microsoft, and Apple.
They also began searching for new funding; their seed money would run out soon, and they
estimated that they needed $3 million, possibly more, to achieve their next major milestone.
They did not want to raise money from their technical partners, as this would tie them too closely
to the investing manufacturer(s). However, their ability to partner with such a diverse group of
companies, including some bitter enemies, impressed the venture capital (VC) community,
leading to interest by several top tier VCs.
TWO TERM SHEETS
On June 10, their efforts were rewarded when they received term sheets from two VC firms, Top
Gun Venture Partners, and Red Baron Venture Capital. (See Exhibits 2 and 3 for term sheets.)
Top Gun was a premier venture capital firm located on Sand Hill Rd in Menlo Park, California
that was known for its successful investments in the past and that had recently raised a large new
fund. Red Baron was a smaller, more recently established venture capital firm, located several
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 3
miles away from Top Gun in the town of Palo Alto. There were some obvious differences: Top
Gun wanted to do the entire deal, for $4 million. Red Barons proposal was for a $6 million
round, of which Red Baron would take half. The valuations also differedTop Gun had a postmoney valuation of $9 million, valuing the company at $5 million before the new investment.
Red Barons post money valuation was $12 million, implying a value of $6 million before the
new investment.
They scanned the terms, and realized that evaluating these offers, and deciding how to proceed,
would not be easythis was the first time either of them had been in this position. They would
need to consult their attorney, but they wanted to understand the offers in detailthey were
selling a substantial part of their business, and were uneasy about agreeing to terms that they did
not fully understand.
They began to review the two term sheets, item by item. What were the items they should focus
most carefully on? How did the various terms impact their return if the company did well? How
were the venture capital term sheets affected by the outstanding convertible notes? What was
missing from these term sheets? If they ran into trouble, how would they fare under each of the
offers? And how, if at all, should they negotiate these terms?
With only a few days before the term sheets expired, what should they do?
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 4
Exhibit 1
Term Sheet: Lagunita Angels
CONVERTIBLE NOTE FINANCING
SUMMARY OF TERMS
January 25, 2012
This Summary of Terms represents only the current thinking of the parties with respect to certain
of the major issues relating to the proposed private offering and does not constitute a legallybinding agreement. This Summary of Terms does not constitute an offer to sell or a solicitation
of an offer to buy securities in any state where the offer or sale is not permitted.
Issuer:
Type of Security:
Amount of Financing:
Purchase Price:
Face value.
Interest Rate:
Term:
All principal, together with accrued and unpaid interest under the
Notes, is due and payable one year after the initial issuance of the
Notes (the Maturity Date).
Prepayment:
The Notes may not be prepaid without the prior written consent of
holders of the Notes that hold at least 66 2/3% of the aggregate
outstanding principal amount of the Notes.
Automatic Conversion:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 5
Liquidity events:
Other:
Non-Binding:
This Summary of Terms reflects our mutual intentions as a basis for proceeding toward
negotiation of definitive agreements.
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 6
Exhibit 2
Term Sheet: Top Gun Venture Partners
SUMMARY
Issuer:
Security:
Capital Structure:
Option Pool:
First Closing:
II.
A.
Dividends:
B.
Liquidation Preference:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 7
Conversion Features:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 8
Voting Rights:
E.
Protective Provisions:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 9
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 10
(i)
amend any provision of the Companys Certificate
of Incorporation or the Companys Bylaws if such action
would alter or change materially and adversely the
preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A
Preferred Stock; or
(ii)
increase or decrease the number of authorized
shares of Series A Preferred.
F.
Pre-emptive Rights:
G.
Secondary Sales:
H.
Right of Co-Sale:
I.
Information Rights:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 11
Registration Rights:
K.
No Redemption:
M.
Board of Directors:
III.
OTHER MATTERS
The Company agrees to pay for all reasonable legal and due diligence fees and expenses
of TGVP counsel listed below and consultants up to $30,000 upon the closing.
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
IV.
p. 12
CONDITIONS TO CLOSING
(1)
The Investors shall have completed to their
satisfaction all legal, intellectual property, technical,
corporate and other due diligence review.
(2)
The Company shall have obtained all necessary
board of director, shareholder and other legally required
approvals.
(3)
The parties shall have executed definitive
agreements, including a stock purchase agreement, which
contains representations and warranties appropriate for an
investment of the nature described herein.
V.
NO SHOP
Upon reaching agreement on this Summary of Proposed Terms and Conditions, neither
the Company nor any of their directors, officers or agents will entertain discussions with any
other investor or consider any other investment or acquisition proposals for a period of 30 days
without the prior approval of TGVP.
VI.
CONFIDENTIALITY
This Summary of Proposed Terms and Conditions and any related correspondence from
the Investors are to be held in strict confidence and are not to be disclosed to any party, other
than the Companys legal and financial advisors, without the prior approval of TGVP.
VII.
EXPIRATION
This Summary of Proposed Terms and Conditions shall expire at 5:00 pm US Pacific
Time on June 14, 2012 if not executed by the Company and TGVP by such date.
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 13
This Summary of Proposed Terms and Conditions is only a statement of the present intentions of
the parties hereto and is not a binding contract, commitment or agreement, with the exception of
Section V (No-Shop) and Section VI (Confidentiality) which Sections shall be binding upon the
parties, and shall be superseded in full by any definitive agreement the parties may enter into
with respect to an investment in the Company. If the parties do not enter into an agreement with
respect to an investment in the Company on or before the expiration of the No-Shop period
described above, the provisions Section VI (Confidentiality) shall remain in full force and effect
for one (1) year from the date of such No-Shop expiration and be enforceable by specific
performance.
By:
By:
Title:
Title:
Date:
Date:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 14
Exhibit 3
Term Sheet: Red Baron Venture Capital
TERM SHEET
FOR SERIES A PREFERRED STOCK FINANCING OF
UNIVERSAL MOBILEAPPS, INC.
JUNE 10, 2012
This Term Sheet summarizes the principal terms of the Series A Preferred Stock Financing
of Universal MobileApps, Inc., (the Company). In consideration of the time and expense
devoted and to be devoted by the Investors with respect to this investment, the No
Shop/Confidentiality provisions of this Term Sheet shall be binding obligations of the Company
whether or not the financing is consummated. No other legally binding obligations will be
created until definitive agreements are executed and delivered by all parties. This Term Sheet is
not a commitment to invest, and is conditioned on the completion of due diligence, legal review
and documentation that is satisfactory to the Investors. This Term Sheet shall be governed in all
respects by the laws of the State of California.
Offering Terms
Closing Date:
Investors:
Amount Raised:
$6,000,000.
Pre-Money Valuation:
Capitalization
Dividends:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Liquidation Preference:
p. 15
Voting Rights:
The Series A Preferred shall vote together with the Common Stock
on an as-converted basis, and not as a separate class, except (i) the
Series A Preferred as a class shall be entitled to elect two (2)
members of the Board (the Series A Directors), and (ii) as
required by law. The Companys Certificate of Incorporation will
provide that the number of authorized shares of Common Stock may
be increased or decreased with the approval of a two-thirds majority
of the Preferred and Common Stock, voting together as a single
class, and without a separate class vote by the Common Stock.
Protective Provisions:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 16
Anti-dilution Provisions:
Mandatory Conversion:
Pay-to-Play:
Redemption Rights:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 17
Conditions to Closing:
Registration Rights:
Registrable Securities:
Demand Registration:
Upon earliest of (i) four years after the Closing; or (ii) six months
following an initial public offering (IPO), persons holding twothirds of the Registrable Securities may request one (consummated)
registrations by the Company of their shares. The aggregate
offering price for such registration may not be less than $10 million.
A registration will count for this purpose only if (i) all Registrable
Securities requested to be registered are registered and (ii) it is
closed, or withdrawn at the request of the Investors (other than as a
result of a material adverse change to the Company).
The holders of 20% of the Registrable Securities will have the right
to require the Company to register on Form S-3, if available for use
by the Company, Registrable Securities for an aggregate offering
price of at least $2.5 million. There will be no limit on the
aggregate number of such Form S-3 registrations, provided that
there are no more than two per year.
Piggyback Registration:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 18
Lock-up:
Termination:
All Investors shall have a pro rata right, based on their percentage
equity ownership in the Company (assuming the conversion of all
outstanding Preferred Stock into Common Stock and the exercise of
all options outstanding under the Companys stock plans), to
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 19
Non-Disclosure and
Developments Agreement:
Board Matters:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 20
Company first and Investors second (to the extent assigned by the
Board of Directors,) will have a right of first refusal with respect to
any shares of capital stock of the Company proposed to be
transferred by Founders, with a right of oversubscription for
Investors of shares unsubscribed by the other Investors. Before any
such person may sell Common Stock, he will give the Investors an
opportunity to participate in such sale on a basis proportionate to the
amount of securities held by the seller and those held by the
participating Investors.
VOTING AGREEMENT
Board of Directors:
At the initial Closing, the Board shall consist of three (3) members
comprised of (i) Aaron Nelson as the representative designated by
RBVC, as the lead Investor, (ii) the representative designated by the
other Venture Firm, (iii) the representative designated by the
Founders who will then serve as the Chief Executive Officer of the
Company.
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
p. 21
OTHER MATTERS
No Shop/Confidentiality:
Expiration:
This Term Sheet expires on June 13, 2012 if not accepted by the
Company by that date.
By:
By:
Title:
Title:
Date:
Date:
This document is authorized for use only by Vladimir Mirkov (vladimir.mirkov@gmail.com). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.